The SVB fallout hits Latin America
#045: On prisoner’s dilemmas, double-edged swords, and glass ceilings.
Hola technopolists,
There’s no avoiding Silicon Valley Bank (SVB). The collapse of the 16th-largest bank in the US is the second-largest banking failure in US history.
I won’t rehash the events: if you’re catching up, read this explainer from The Verge. From there, follow general coverage from the FT for real-time updates; they began reporting on SVB weeks ago when short sellers raised the alarm about the bank’s fragility.
What do you need to know about SVB’s impact on LatAm?
Many Latin American founders banked with SVB. In order to ease investment from overseas investors, many LatAm startups choose to incorporate in the Cayman Islands; companies like Latitud and Kamino even semi-automate the formation of “Cayman Sandwich” structures. Insiders estimate that 90% of offshore-based LatAm companies banked with SVB, since the bank was one of few facilitating easy account opening without a US Social Security Number.
Latin America felt the fallout. With so many LatAm companies banking with SVB, it’s no surprise that they felt the stress (and exacerbated the pace) of the collapse. Bloomberg reports that local funds Upload Ventures and Canary (among others) urged their founders to pull funds from the bank, just like many investors around the world. Founders from companies like Políglota, Fintual, Rankmi, and SoyMomo spoke publicly about the white-knuckle moments waiting to withdraw their cash in the bank’s death throes. Until we were told all deposits were safe.
Zooming out of LatAm (briefly)
Despite paeans to SVB’s cornerstone role in the industry, the reality is that Tech largely did this to itself. Its collapse was an old-fashioned bank run.
The psychology of a bank run boils down to the prisoner’s dilemma. All depositors would have benefitted had the group held steady, not withdrawn, and kept the bank afloat. But no one wanted to risk being the last sucker with trapped funds. In the end, each customer is incentivised to pull their cash. The bank goes bust and everyone is worse off.
Now, SVB’s bailout has raised latent ironies for the ecosystem. It’s possible to believe all of these points without being contradictory:
SVB played an important, beneficial role in Tech; however, SVB is also a symbol of the overheated, insular public image of the Tech ecosystem
SVB was put under stress from external factors (i.e., interest rates) that it could neither predict nor control; however, it made a big loss-making bet, so its collapse was completely avoidable
Depositors are not to blame and should be made whole, both to protect themselves and avoid economic contagion; however, it’s ironic that an industry generally averse government intervention is now gladly receiving state help
Depositors acted in good faith to protect their businesses by withdrawing funds; however, by trying to protect themselves individually, they harmed themselves collectively
The tragic irony is that customers killed their ‘most important partner’ as they scrambled to save themselves. Hype is a double-edged sword: the same hype machines that fuelled 2021’s overheated valuations also enabled a fear-mongering death spiral. ‘Collateral’ takes on a whole new meaning.
What’s Hot (and Not)
Outside of SVB’s collapse, International Women’s Day dominated the news, making this a worthwhile moment to reflect on the progress and challenges facing women in LatAm’s tech.
🔥 What’s Hot: LatAm is showing some progress in the fight against gender economic inequality. New data shows that 37% of senior managers in LatAm are women, above the global average (32%) and all regions except Southeast Asia (40%). Tech companies of all sizes used the opportunity to announce gender-parity initiatives from Amazon Mexico’s women entrepreneur programme, to iFood’s scholarship retraining women for tech roles, to WAGMI LatAm’s target of getting 5mn women into web3-related roles by 2030. Bloomberg Linea commemorated the moment with its list of the 50 Most Impactful Latina Women.
👎🏽 What’s Not: The path ahead is steep, and the glass ceiling doesn’t seem to be moving fast enough. In 2021, only 4.7% of LatAm startups were founded by women, while less than 1% of $3.5bn in Brazil’s VC funding went to female founders, according to data from Endeavor. And while we mentioned above that LatAm has decent representation amongst senior managers, there’s a glass ceiling in the boardroom: only 8% of board seats are occupied by women — lagging every other region in the world. According to IBM, "at the current rate of change shown, gender parity is still decades away”.
Stat of the Week
February investment numbers are in, and startupland is still cooling off.
So what? Investment levels are at their lowest point in years. February was worse than usual; not only did it shrink -75% YoY, but it slid -60% over January, even though February is normally -10% lower than January. Last month saw the fewest deals completed since 2017 (53).
Brazil, though half of total LatAm investment, is declining faster (-85% YoY) than the rest of the region (-75% YoY) — a further signal that the regional giant may be losing its lead. There’s no reason to update the perspective of a mass extinction event in the back half of the year before a market rally in 2024.
The Rundown
Cubo Itaú, the accelerator run by the eponymous Brazilian bank, boasted that revenues from its portfolio companies grew 120% in 2022 to $1.9bn while total investment received 43% despite the market downturn. (Startupi)
LatAm-based accelerator Pygma announced the third cohort of its pre-seed programme, while also announcing the acquisition of Colombian pre-seed venture fund Scala. (Tekios)
Brazil’s central bank confirmed new details about its digital real programme, outlining its new primary use case as an inter-bank liquidity settlement protocol — a kind of “Pix for financial services”. (Brazil Crypto Report)
Mexico’s peso hit a 5-year high last week and became the top-performing major market currency in the world, though its value lost steam Monday and closed -3% down on the day. (Financial Times)
Silvergate, the San Diego-based lender and prominent bank for crypto businesses, will be winding down operations as a result of “recent industry developments” in the wake of the FTX fallout. (Financial Times)
Deals (March 7 - 13, 2023)
Fundraises
🇨🇱 KLYM, a financial services platform, raised a $27mn Series B from by JPMorgan and the International Finance Corporation (IFC).
🇨🇱 Toku, a payments platform, raised a $7mn round led by F-Prime Capital with participation from Honey Island, Wollef, FundersClub, ClockTower Ventures, Matías Muchnik (NotCo), Sebastián Kreis (Xepelin), and angels.
🇨🇱 Wheel the World, a travel company that provides inclusive experiences for the disabled, raised a $6.1mn pre-Series A led by Kayak Ventures with participation from Detroit Venture Partners, Dadneo, Amarena, REI Co-op Path Ahead Ventures, CLIN Fund, and WeBoost.
🇧🇷 Jungle, a web3 mobile gaming company, raised a $6mn seed co-led by Bitkraft and Framework Ventures with participation from Delphi Digital, Karatage, Fourth Revolution Capital, Monoceros, 32bit Ventures, Snackclub, and Norte Ventures.
🇧🇷 Automni, a logistics provider that develops robotics and autonomous vehicles, raised a $1mn investment from MSW Capital and Viaducto.
Debt
🇲🇽 Clara, a corporate credit card and expense management platform, raised a $90mn credit facility from Accial Capital. The company will use the funds to expand in Brazil and open a second office in Colombia. The new funding comes quickly after last year’s $150mn credit facility from Goldman Sachs, bringing total debt financing to $240mn.
VC Funds
🌎 Upload Ventures, the spinout of SoftBank’s LatAm fund, announced that it is raising a new $250mn fund. Filings reveal that the fund’s focus will include early-stage and late-stage investments, adding the latter to address the venture funding gap that SoftBank itself created with its retreat in 2022. So far, Brazilian telecom giant TIM has committed a $50mn anchor investment over the next two years.
🌎 CAF, the LatAm and Caribbean development bank, announced it will invest $25mn over the next 5 years toward sustainable development.
Did I miss any deals? Let me know!